How Fast Does Your Car Depreciate in Value?. Question A car that you bought brand new cost $20,000 four years ago, but is now worth about $10,000. What do you think the car will be worth four years from now? Pick one of the choices below. CHOICE A – The Car will be worth little or nothing
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A car that you bought brand new cost $20,000 four years ago, but is now worth about $10,000.
What do you think the car will be worth four years from now? Pick one of the choices below.
CHOICE A – The Car will be worth little or nothing
CHOICE B – The Car will be worth about $5000
CHOICE C – The Car will be worth about $7000
CHOICE D – We have no idea!
The reason we can make this prediction is that vehicles lose their value exponentially, that is, they lose a fixed percentage rate of value each year, much the same as the way money in a bank account increases at a fixed interest rate with frequent compounding. When exponential decline occurs, then there is a halving that occurs at a regular fixed interval. So if the value of 20,000 is cut in half to a value of 10,000 in 4 years, then the value of 10,000 will be cut in half to 5000 in another 4 years.
At some point, the exponential model no longer applies as the vehicle gets so old as to make it worthless due to expense of major repairs. But in the first 10 years, the exponential model is shown to be a good predictor, as shown in the web page linked to below.
For More Info on How Cars Depreciate Exponentially, See Use Algebra To Predict Your Cars Value